Lower Fees Drive Demand for ETFs in 401(k) Plans

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Driving Demand of ETFs

Plan sponsors are consolidating their investment menus to reduce cost, which should be giving DC investment managers cause for concern. Nearly two-thirds (65%) of plan sponsors point to investment fees as one of the primary factors they find most challenging to manage. Amidst the heightened attention on fees and expenses, we find increasing interest in ETFs, especially among larger plans which tend to be trend setters in the industry.

Nearly a quarter (23%) of 401(k) plans include ETFs in their investment menus today, and another 10% of plan sponsors indicate interest in adding these products going forward. Among plan sponsors who currently offer or plan to offer ETFs in the next 12 months, “lower fees” is tied with participant interest and demand as the primary driver of the appeal of these products. Close behind is the recommendation of a plan consultant or advisor, whose suggestions are likely influenced by the potential to lower the fees associated with investments in the plan. Continue reading

Not All Institutional Investors Are Alike

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Not_All_Institutions_Are_Alike

Uncertainty in China. Falling oil prices. Volatility in US equity markets. The Federal Reserve raising interest rates for the first time since 2008. All of these factors converge to create an unsettling environment for institutional investors. As a result, these investors are re-examining their portfolios and reassessing their use of different asset classes, investment products and asset managers. But the needs, perceptions and behaviors of institutional investors vary dramatically by asset size and category, proving the adage that not all investors are alike.

For asset managers serving the institutional market, the need for focus has never been greater. Determining the right business strategy, product offering and competitive positioning is to a great extent dictated by the segment of the market being targeted. Firms can choose to develop a scalable approach for the smaller institutions or pursue the polar opposite with customized solutions for the largest institutional clients. In either case, understanding the forces driving market needs and the factors impacting the competitive environment is critical. Continue reading

Larger Institutions Drawn to Smart Beta ETFs

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Larger Institutions Drawn to Smart Beta ETFs

Despite the vast array of product offerings and investment solutions available in the institutional market, institutional investors managing less than $1 billion in assets continue to favor two product categories—individual securities and open-end mutual funds—while organizations managing at least $1 billion in assets report higher allocations to separate accounts, commingled funds and limited/private partnerships, evidence of the wider variety of investment strategies these institutions employ. However, one category that has enjoyed substantial growth of late is that of ETFs. In fact, 37% of institutions now use ETFs, up from just 26% two years ago. Continue reading

How Do You Take Your Money Management?

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How Do You Take Your Money Management?

Active versus passive management is an increasingly relevant subject to explore given the rise of ETFs and the ongoing debate about index funds. Some investors are active purists, seeking the alpha on performance that a professional manager or individual investor can potentially achieve, while others prefer to rely in part or completely on tracking market indices. Three segments with differing asset allocation models—100% active, 100% passive and active/passive blend—are alive and well among affluent investors.

Across the generations, Millennials (54%) are most likely to blend active and passive, followed by Gen Xers (48%) and 2nd Wave Boomers (47%). However, the likelihood of being 100% invested in actively-managed products increases with age, peaking at 48% among Silent Generation investors. Continue reading

Advisor ETF Use Surges

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Advisor ETF Use SurgesReflecting advisors’ heightened fee sensitivity and increasing use of passive management, this year the proportion of advisors who report selling ETFs is at an all-time high. Three-quarters (76%) of advisors now report selling ETFs, a significant increase compared with 68% of advisors in 2014. This increase was driven by a significant uptick in use among both RIAs and Bank advisors. ETF adoption remains highest among RIAs and National wirehouse advisors, while RIAs are the only channel with a higher proportion of advisors selling ETFs (93%) than mutual funds (86%). In addition, average allocations to ETFs have risen 29% over the past year, from 11% to 14%.

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Innovation: Ready or Not, Here It Comes

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AB_Blog_ImageThe market is strong, investors are confident, and short of a big, fat Greek economic disaster, it looks like smooth sailing ahead for financial advisors, right? Well, yes and no.

On the one hand, fewer investors are standing on the sidelines and there’s a lot more money in our economy available to invest, presumably with the help of an advisor. On the other hand, rapidly advancing technology, shifting marketplace dynamics and an array of new investment products are forcing advisors (and asset managers) to reevaluate their current business practices, and more fundamentally, to consider their relevance moving forward. Continue reading

Mega Plans Turning to Managed Accounts for Greater Personalization

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Tailor_ImageMega plans, which often serve as industry trendsetters, have tripled their reliance on managed accounts, according to the newly released DC Investment Manager Brandscape™ study.

The proportion of Mega plan sponsors offering these customized allocation solutions has increased from 5% in 2014 to 18% in 2015. While target date funds continue to serve as the most widely preferred default investment option among most plans, this increased usage of managed accounts among Mega plans signals a growing desire in the industry to offer even more personalization to participants. Continue reading

The Future of ETFs: A Goldilocks Tale

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As ETFs continue to evolve and investors clamor for them, advisors are correspondingly developing new strategies for incorporating ETFs in their portfolios. The diagram below, taken from Cogent Reports’ recent qualitative study Trends in ETF Usage, shows the trajectory of that strategic evolution.

Testing the Porridge: The ETF Appeal and Adjusting It to Suit Our Tastes

Historically, the vast majority of advisors who used ETFs were at stages 1 and 2—dabbling to fill a specific asset class gap or using ETFs to fulfill short-term tactical goals. However, more and more of those advisors are now placing ETFs at the heart of their strategy. Using ETFs as a core replacement vehicle or even adopting an all-ETF strategy is, not surprisingly, greatly fee-related. For advisors who are fundamentally skeptical about the fee-justifying benefits of active management, transitioning into all-passive management would seem entirely logical. However, even the most ardent passive advocates have some hesitation: track record is the most frequently cited barrier and correlates to a prevailing sense that very few advisors are eager to place all their eggs in one basket. As a result, stage 4’s all-ETF strategy is considered “too cold” for the vast majority. So what then for those who also believe that active management fees are “too hot” to justify? Continue reading